Moody's: Covered bond performance in Korea and Singapore stable in Q4 2015

Moody's says that the performance of covered bond transactions in Korea and Singapore was stable during Q4 2015.

The stable and strong financial standing of the issuers for each transaction in Korea and Singapore, the stable credit quality of the cover pool assets -- comprising residential mortgage loans -- and the stable ratings of the Korean and Singapore sovereign contributed to the stable performance of covered bond transactions in the two markets. The sovereign ratings for Korea and Singapore are at Aa2 and Aaa respectively.

For Korean covered bond issuers, the Covered Bond Anchor Point is at Aa3 (cr) for Kookmin Bank and Aa2 for Korea Housing Finance Corporation (KHFC). Both ratings carry a stable outlook. As for Singapore covered bond issuers, the Covered Bond Anchor Point is at Aa1(cr) with a stable outlook for all transactions.

For Korean and Singapore covered bonds, the Covered Bond Anchor Point -- an indication of the probability that the issuer will cease making payments under the covered bonds -- is represented by the counterparty risk assessment of the issuer, except for the KHFC. In the case of KHFC, the Covered Bond Anchor Point is represented by the company's foreign currency issuer rating.

The average collateral scores for covered bond transactions in Korea and Singapore were at 11.6% and 6.8% respectively for Q4 2015.

For Q4 2015, the weighted average current unindexed loan-to-value ratios of the residential mortgage loans in the cover pools ranged between 42.3% and 66.4% for Korea, and 57.9% and 60.7% for Singapore.

Covered bond issuers in Korea comprise KHFC and Kookmin Bank, and issuers in Singapore comprise DBS Bank Ltd. and United Overseas Bank Limited. KHFC's covered bonds are rated Aa1, other Korean and Singapore covered bonds are rated Aaa.

Moody's started publishing performance overviews for the Korean and Singapore covered bond market for transactions that issued covered bonds in 2015. These transactions comprised Kookmin Bank's programme, KHFC's 2015 covered bonds, as well as DBS Bank's programme.

As part of Moody's efforts to improve the transparency of Moody's-rated covered bond transactions, Moody's publishes quarterly performance overviews for Korean and Singapore covered bond deals. The performance overviews provide investors with updated information on the key credit statistics of each covered bond transaction, as well as Moody's key rating metrics.

Moody's says that for Q4 2015, the transactions' minimum over-collateralization commensurate with the ratings of the covered bonds was at 0% for the KHFC transactions, 21% for Kookmin Bank's programme and 5% for the Singapore programmes.

The minimum over-collateralization commensurate with the ratings of the KHFC covered bonds fell in Q4 2015 from the levels seen previously, because of the upgrade on 21 December 2015 of KHFC's foreign currency issuer rating to Aa2 from Aa3. For Q3 2015, the level was at 5% and comprised deals closed in 2011 and 2013. As for the KHFC covered bonds which closed in November 2015, the minimum over-collateralization commensurate with the rating was at 6%.

For Q4 2015, average committed over-collateralization levels were at 16.3% for Korean transactions and 16.5% for Singapore transactions. Other than Kookmin Bank's programme, the levels were higher than necessary to maintain current ratings, with a simple average buffer of 14.7% for Korean transactions and 11.5% for Singapore transactions.

During Q4 2015, USD500 million in Korean covered bonds were issued. There were no covered bonds issued in Singapore over this period. The outstanding total for covered bonds as of the end of Q4 2015 was at USD2 billion for Korea and USD1 billion for Singapore.

The Q4 2015 performance overviews for Korean and Singaporean covered bond transactions are based on cover pool data as of 31-December-2015, except for DBS Bank's programme which is dated 9 January 2016.